I refuse to let my house be an investment

August 11, 2009 · 7 comments

So I’m a little weird and have a slight obsession with HGTV. I’m not particularly fond of the decorating shows, but when it comes to shows on the home buying process I’m pretty much an addict. I was watching “My house is worth what?” last night when I had an epiphany: I don’t want my house to be an investment.

This show focuses on individuals that are having their homes appraised. One of the couples in yesterday’s episode said they wanted their house appraised because they had not saved for retirement properly and they were hoping the equity would provide some funding for their later years. Those people are freakin’ crazy!

I know a lot of people are eager to purchase homes because they consider them a “good investment”. I wont argue with them, but I don’t ever plan to classify my residence as an investment. Instead, my home will be a forced savings account.

Once I get to experience the joys of home ownership, I never intend to return to renting. What does this mean? I don’t consider home ownership an investment because I am always going to need a place to live. Although it’s true that I will probably build equity in my home over the years, I am reminded there is a difference between paper gains and realized gains. I feel like I’m probably confusing the crap out of you so let me see if this example helps.

Let’s pretend I buy a house this year for $200K. Assuming a 5% home appreciation over 10 years my house will be worth $325K in 2019. Pretty sick that I made $125K without having to do anything. But let’s not forget our enemy inflation. Taking 3% inflation in to account it is more like a $57K gain over the ten years, still pretty sweet. But guess what. Ten years from now I’m still going to need a place to live. The $57K is just a paper gain, meaning it is intangible money (unless I took out a HELOC, which I will NEVER do!). The only way to actually have access to that $57K would be to sell my house. If I sold my house where am I going to live…in another house?

I guess in theory one could argue that you could downgrade in home as you get older to pocket the appreciation, but why the heck would I want to downgrade in life? As I get older I plan to UPGRADE. I know that home ownership can be a pretty sweet gig in the long term and it probably is an “investment”, but I am much more comfortable thinking of my home as a forced savings account so that I can eventually buy a bigger and better house. It made me really sad to see this couple on HGTV put all of their retirement hopes in the equity in their home. They are crazy and I don’t like it.

{ 7 comments }

1 ashley

I get what you're saying, and I agree that it's definitely crazy to rest all your retirement hopes on your home! But at the same time, you can't completely forget what a home is worth. And even if you are upgrading so you won't get the appreciation in cash, a home is one of the few used things that you can trade in and get MORE money for.

But also, don't forget that SOMEDAY, when you are really really really old, you might want a smaller, more manageable place. I think it'd be hard living in a 3 story mansion when you're 90 and using a walker! Or you might want to go into a retirement community, where even a small cottage can run you 300-400 thousand dollars PLUS a thousand dollar monthly fee. I used to work in the marketing department of a nursing home, and you would be amazed how much the sale of a home (or two) can bump people up into the more "luxurious" cottages and apartments so they don't have to live out the rest of their lives in an efficiency. Having a home that has appreciated a ton can be really helpful then.

2 Punch Debt In The Face

Ashley- You bring up several good points. I know at the end of the day a home is an investment, I just don't want to get caught up in the mentality that Im using my home to make me rich. I'm using my 401k and Roth IRA to make me rich, and my home to live in.

Oh and I plan to be so rich that when I am 120 years old I will have hired help to change my diapers and feed me in my mega mansion :)

3 Jesse

Can we say "housing bubble". This kind of thinking is what got most of the nation in trouble in the first place. Houses are only worth what someone else will pay for them. Just because you think the house will/has go up in value cos everyone elses house did, doesnt mean you will be able to sell it for that. Especially if all the other houses are for sale.

Nevertheless, it is nice to own a house but it is definitely a liability, not an asset.

4 Donnie

Renter for life, yo. The flexibility is worth way more to me than any possible appreciation.

Perhaps I could afford to switch jobs more often and get more money, because you aren't tied down to one area.

5 Jessie

AGREED! I want a house to live in, that's mine and that I can do with what I please! The rest of it is gravy…

6 Denis M.

My train of thought now is to buy a home here, let it "appreciate", sell it 20 yrs down the road, then move to my homeland of Nicaragua where i can live like a king on the sale of the home, a 300k home here would cost about 50k there and i pocket the rest which would last me a lifetime :)

7 Allison Brown

A very interesting blog post. What would you say was the most common problem?

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